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Taxpayer response to greater progressivity: evidence from personal income tax reform in Uganda

Author

Listed:
  • Maria Jouste

    (UNU-WIDER)

  • Tina Kaidu Barugahara

    (Uganda Revenue Authority)

  • Joseph Ayo Okello

    (Uganda Revenue Authority)

  • Jukka Pirttilä

    (University of Helsinki
    VATT Institute for Economic Research)

  • Pia Rattenhuber

    (UNU-WIDER)

Abstract

The extent of redistribution in low-income developing countries, including in Africa, is very limited, which raises the question whether the tax rates of high-income individuals should be raised. A crucial parameter when considering a potential increase in progressivity is the response of taxable income to increased tax rates. In this paper, we evaluate a major personal income tax reform in Uganda that came into effect in 2012–2013, which increased the top tax rate by 10 percentage points. Using the universe of pay-as-you-earn (PAYE) administrative data from the Uganda Tax Authority, we analyse the impact of the reform on reported labour incomes. In the preferred specification, we find very limited support for behavioural reactions. However, heterogeneity analysis reveals that top-income workers in firms handled by ordinary (as opposed to medium or large taxpayer) offices report lower incomes after the reform. We also find suggestive evidence that part of the response may arise from income shifting to other tax bases. The reform managed to raise more revenue and it also led to a limited reduction in after-tax income inequality.

Suggested Citation

  • Maria Jouste & Tina Kaidu Barugahara & Joseph Ayo Okello & Jukka Pirttilä & Pia Rattenhuber, 2025. "Taxpayer response to greater progressivity: evidence from personal income tax reform in Uganda," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(4), pages 1177-1212, August.
    • Handle: RePEc:kap:itaxpf:v:32:y:2025:i:4:d:10.1007_s10797-024-09861-w
    DOI: 10.1007/s10797-024-09861-w
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    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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